Gold is an asset that is often quoted as a hedge against inflation. Inflation is currently something that is often quoted in the news. So, let’s take a look into gold and the outlook that some have.
Inflation
The threat of inflation is finally pushing gold higher as investors expect price pressures to continue climbing. Two big drivers for gold going forward will be the U.S. dollar and bond yields. The dollar has retreated, giving some breathing room to gold, while the bond yields have just paused their climb.
What else could cause the dollar to weaken and gold to rise? A European recovery along with some new euro strength could play a critical role in determining the dollar’s direction. We could start to see better global economic recovery, which would drive a lot of European growth potential.
Technicals
The monthly chart has an amazing setup, a textbook Cup and Handle pattern. It’s getting close to make or break time and with inflation on the rise, maybe this is the moment. Breaking the current downtrend is the key watch over the next weeks.
This breakout can be seen more clearly on the weekly chart. This upper resistance line has been tested several times over the last 18 months. But we can also see that strong support is building below, forming a wedge. We should be seeing a breakout over the coming months given the current catalysts.
Diversify
The current 2022 outlook seems to suggest that some diversification could be beneficial. Gold could be a good pick to add to your portfolio.
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